High Spirits, low prices

Spirit Group may be discounting beer but it will not sacrifice quality or service. Mark Stretton talks to commercial director Andrew Knight.When...

Spirit Group may be discounting beer but it will not sacrifice quality or service. Mark Stretton talks to commercial director Andrew Knight.

When Spirit Group announced it was jumping aboard the discount bandwagon it became the latest in a long line of retailers slashing prices in a bid to drive sales.

Barracuda, Laurel and Yates are but three to follow JD Wetherspoon in serving up cheap drinks. A period of feverish discounting has gripped the industry as rival operators on crowded drinking circuits jostle for supremacy. "In some cases it's given our pubs a new lease of life," says Spirit commercial director Andrew Knight. "More people are coming in, there is a better atmosphere and sales are up."

Discounting has been named as the cause of antisocial behaviour by retailers and trade bodies alike, and has attracted negative press in the national media - concerns not lost on Spirit. "The managers felt it could attract the wrong people," he says "But we research it on a weekly basis and there is no evidence to suggest that is the case."

Spirit has several pricing promotions, the cheapest of which sees Carling priced at £1.30 or a bottle of wine for £5. The offer is in place in the 160-strong Mr Q's pub chain, in the 70-strong contemporary food-focused Q's brand and in 120 of its 150 city centre pubs, where saturation of licensed premises and tough trading times has left sales figures looking limp across the industry.

Is this aggressive price slashing damaging the industry or are smaller margins the way forward? "We have to move the business on from the age old view that pubs can move prices up every year by a few per cent without consequence," says Andrew. "The reality is that you have to be competitive and offer best value to your customers."

He says Spirit focuses on offering best price, best quality and best service. "We are investing to gain market share," he says. "It's another tool in our armoury to drive foot-fall."

Although Spirit is discounting, it will not do a Wetherspoons and match supermarket prices. Nor is the move permanent, it is a sale.

Andrew acknowledges that tenants of pub companies cannot compete with the current pricing levels of managed pubs. "I don't think you attract customers just on price," he says. "But it does put tenants in a difficult position because of their rent and beer prices. If all pubs and sales are declining why are rents going up? We see it as a chance to drive our business."

Once again this Christmas, supermarkets were piled high with beer at very cheap prices. Andrew says its up to the pub trade to stop brewers supplying supermarkets at huge discounts. "I think the brewers have had most of their growth in the off-trade for the last 20 years," he says. "If you were a brewer would you invest in a declining or growing market? It's up to the pub industry to convince the brewers that the on-trade is a better investment.

"But I think it's short-sighted of Interbrew to be selling Stella into supermarkets at these reassuringly cheap prices. If you're a grocer it's fantastic - you are supplying a highly-valued product at a great price. Beer gets people in supermarkets."

Andrew says pubs must deliver to brewers on positioning, volumes and quality in the same way grocers have. "We have to convince them that we will allow them to grow."

Andrew is responsible, as commercial director, for everything to do with the offer - food, drink, machines, processes and so on. It is an area that Spirit has worked hard on for the last three years.

It has identified three main branded growth drivers in Bar Room Bar, a bar lounge concept with clay pizza ovens, Two For One, the value-led offer where meals, as the name suggest, are two for the price of one, plus Q's. Food is an important part of all three brands.

The company also has a significant local business, 50 gastropubs, about 150 town centre pubs, and six nightclubs. "The city centre sites are performing better but everyone knows the challenges there at the moment.

"Fortunately the pubs are more traditional and in secondary positions. Most of the high street stuff was sold to Six Continents when the business was formed."

It is also testing some retail concepts including Tube, a young person's venue, three new Firkins and All Day Family Feast, a family dining pub.

Formerly the retail arm of Punch - the tenanted company that floated on the stock market for £600m last May - Spirit was created when entrepreneur Hugh Osmond bought a 3,000-strong mix of tenanted and managed pubs from Allied Domecq in 1999.

Well documented were the years of neglect the pubs had endured. Some had not seen any investment for six years.

Since 1999 every Spirit pub has been touched by the company in some way. It has invested in 80 per cent of the estate, with spends ranging from £10k to £400k. The rest have had "sparkle" spends - investments ranging from £10k, down to a lick of paint.

Spirit is led by Karen Jones, the Café Rouge entrepreneur with a formidable reputation. "She has the ability to motivate more than anyone I know," he says. "I think you could give any pub to Karen and she would make it successful."

He says her honest and direct approach has filtered down through the company. "We have an organisation where everyone knows where they stand," he says. "In the first two years we really did focus on the right people. I guess that's where we have the reputation for changing personel.

"A lot of the hiring and firing is grossly overstated but if you don't have the right people it's impossible to affect change."

As the only board director that has survived from the Allied days, Andrew has seen a lot of change. Having read the "staple diet" of business studies and marketing at Teeside with a year in industry at Courage, Andrew went to work for Allied Breweries, later transferring to retail with Allied Domecq.

The business was later sold to Punch, backed by Texas Pacific. Much has changed since he joined the industry straight from university. "The days of sitting on ideas for six months then assigning a steering committee and pottering along are gone," he says.

It is no secret that shareholders had planned to float Spirit after Punch. "We have a number of options with regard to the well-publicised flotation," he says. "Ownership at the moment is not an issue, public status would just give us more cash to develop our pubs."

The Spirit commercial director says the list of improvements is endless - from people, to food development to the company's "One Call" call centre. It will shortly launch a quality initiative focusing on draught beer.

It also plans to step up acquisitions and is offering a £5,000 bounty to staff who help the company in its quest for 33 new sites this year.

"People were very suspicious of Punch and Spirit but I think some will realise we're getting it right," he says. "We recently conducted our first survey of company attitudes among our staff and there was some strong feeling for Spirit that wasn't there three years ago.

"We have got ourselves to base camp with our offer. In evolution terms we are about 30 per cent along the way - in three years we have moved absolute mountains. The change for the better has been massive."